NEPAL: ECONOMIC HIGHLIGHTS FOR JULY 2009

UNCLAS SECTION 01 OF 02 KATHMANDU 000739

SIPDIS

E.O. 12958: N/A
TAGS: ECON ELAB ENRG ETRD PGOV NP
SUBJECT: NEPAL: ECONOMIC HIGHLIGHTS FOR JULY 2009


1. (U) Below is a compilation of economic highlights from
Embassy Kathmandu for the month of July 2009, including the
following:

-- FY 2009/10 Budget Nearly 34 Percent Larger
-- Economic Survey Shows Declining Performance
-- UN Says Hunger in Some Areas 'Extremely Alarming'
-- Growth in Overseas Workers and Remittance Slows


FY 2009/10 Budget Nearly 34 Percent Larger
--------------

2. (U) The Government of Nepal (GON) introduced a Rs.
285.9 billion (USD 3.7 billion) budget for fiscal year
2009/10 on July 13. The proposed budget is nearly 34
percent larger than the FY 2008/09 budget and more than
double the amount the government spent two years ago. The
largest share of the budget, 45.6 percent, is earmarked for
social services, including education, which accounts for
16.3 percent of total spending. The GON plans to make a
massive investment in infrastructure improvement, including
Rs. 18.5 billion for road construction, upgrading and
maintenance. Revenues are expected to total Rs. 176
billion, with the balance of budget financing
coming from increased foreign aid (Rs. 78.5 billion in
grants and loans) and domestic borrowing (Rs. 30.9
billion.) The projected Rs. 52.4 billion deficit is more than
40 percent higher than the previous year's shortfall.

Government's Economic Survey Paints Bleak Picture
-------------- --------------

3. (U) Nepal's economy grew by just 3.9 percent in FY
2008/09, compared to 5.3 percent in the previous year,
according to the Finance Ministry's annual economic survey
released on July 8. The survey, based on the first eight
months of the fiscal year, showed that the consumer price
index rose nearly 13 percent, up from 7.7 percent the
previous year. Growth in the agricultural sector, which
accounts for about one third of the total gross domestic
product, fell to 2.1 percent, less than half the previous
year's rate. The non-agricultural sector grew by 4.8
percent, compared to 5.7 percent in FY 2007/08. The
Ministry blamed slow agricultural growth on adverse weather
and attributed the non-agricultural sector's weak
performance to the energy crisis, "bandhs" (strikes) and
other problems.

UN Says Hunger in Some Areas 'Extremely Alarming'
-------------- --------------

4. (U) The level of hunger in the mid- and far-western
mountain regions of Nepal is "extremely alarming,"
according to a report issued by the UN World Food Program
(WFP) in late July, which says the percentage of
malnourished people in these areas is on par with Congo and
Ethiopia. Overall, Nepal ranked 57th out of 88 countries
studied by the WFP. Of the 15 sub-regions in Nepal, the
level of hunger in 12 was categorized as "alarming" or
worse. No sub-region fell within the moderate or
low-hunger categories, which the WFP said, "underscores the
seriousness of the food security situation in Nepal."

Growth in Overseas Workers and Remittances Slows
-------------- ---

5. (U) The number of Nepali workers going overseas fell by
12.8 percent in fiscal year 2008/09, compared to the
previous year, according to the Department of Foreign
Employment (DoFE) in the Ministry of Labor and Transport
Management. DoFE reported that 217,164 workers left for
overseas jobs during FY 2008/09, which ended on July 15.
Although that is 31,887 fewer than the record number of
workers who went overseas in FY 2007/08, it is still the
second highest total of all time. Experts said the slower
growth is a result of the global economic downturn, which
led Malaysia and the United Arab Emirates, two of the most
popular labor destinations, to downsize the foreign
work forces in certain sectors. Although the number of
Nepalis going to Qatar fell by 10.8 percent, it still
remained the top labor destination, with 76,175 Nepali
workers arriving there in FY 2008/09.


6. (U) Remittances grew by 55.5 percent to a total of USD
2.45 billion during the first 11 months of FY 2008/09,

KATHMANDU 00000739 002 OF 002


according to the Nepal Rastra Bank. However, the
year-on-year growth rate has steadily declined since the
third month of the fiscal year, when it reached 80.7
percent. (Note. These figures do not include people working
in India.)

Vehicle Registrations Soar, Road Construction Lags
-------------- --------------

7. (U) The number of vehicles registered annually has
nearly doubled over the past four years, according to the
Department of Transport Management (DoTM) in the Ministry
of Labor and Transport Management. DoTM reported 102,570
new vehicle registrations in fiscal year 2008/09, which
ended July 15. In FY 2004/05, up from 55,775 in FY
2004/05. The new registrations brought the total number of
vehicles in the country to 805,614, more than half of which
are registered in Kathmandu Valley, according to DoTM.
Motorcycles account for nearly three-quarters of all
registered vehicles. According to the government's
proposed budget for the new fiscal year, just 62 kilometers
of roads were added across the country during the first
eight months of FY 2008/09.

Fuel Consumption Grows 15 Percent
--------------

8. (U) Despite frequent short supply of petroleum
products, consumption rose by 15 percent in FY 2008/09,
according to the Nepal Oil Corporation (NOC),the state-run
monopoly. The NOC reports that an average of 2,301
kiloliters (KL) of fossil fuels were consumed daily, led by
the use of diesel, which grew by 54 percent to a total of
463,140 KL. Much of this growth was attributed to the
increased use of power generators in the wake of protracted
load-shedding. Consumption of gasoline grew by 22 percent
to a total of 123,782 KL. NOC officials said the 15 percent
growth in consumption of liquefied petroleum gas reflected
rising urbanization.

Tourists Arrivals Up for Month, Down for Year
--------------

9. (U) Tourists arrivals by air increased by 10 percent in
July, compared to the same month last year, according to
the Nepal Tourism Board. Even though this was the second
consecutive monthly increase, the overall number of
arrivals this year is still down 4 percent, compared to the
first seven months of 2008. With a 16-percent increase in
monthly arrivals, compared to July 2008, the United States
remained the second largest source of tourists. A total of
14,897 Americans have arrived by air so far this year.
India is still, by far, the largest sources of tourists.
The number of tourists arriving from India increased by 33
percent in July, compared to the same month last year,
bringing the 2009 total to 52,942. (Note. In recent years,
air arrivals have accounted for about 70 percent of all
tourists.)
MOON